Australia’s energy market confusion is hurting the environment and business

Clarity and decisiveness from governments is critical to managing the renewable energy transition, with Australia’s decade of policy chaos providing a lesson in how not to do things.

Across the Asia Pacific region, government policy on sustainable energy is often a study in mixed messaging, reflecting a stop-and-go approach and lack of consensus.

Vietnam has revised the seventh edition of its Power Development Plan, cutting total power output by 18 per cent by 2030 and incorporating solar and more hydro. But the nation maintains the world’s 3rd-largest pipeline for coal power plants, and looks set to quadruple coal’s generation capacity.

Malaysia’s still-fresh government has recently opened a tender for 500MW of large-scale solar, and launched a suite of tweaks to the rooftop solar marketplace. However, there is also renewed discussion of opening protected forests in Sabah to coal mining exploration.

And, despite being an ASEAN leader in clean energy legislation, the Philippines is undergoing a government-led boom in coal generation projects.

But the past decade has demonstrated that Australia can prevaricate with the best in the region. Ferocious cultural warfare over renewable energy has paralysed policy, contributing to the downfall of six prime ministers and Australia’s reputation as “coup capital of the Pacific”.

And despite installing renewables at 4-5 times the rate of China or the European Union (per capita), it’s unclear whether Australia is set to shoot past - or miss completely - its Paris Agreement targets. Confusion is prevailing in environmental and business planning.

Australia’s energy market is a mess. There will be significant learnings [for the region] from our mistakes.

Oliver Yates, former chief executive of the Clean Energy Finance Corporation

Under yet another new leader, the Liberal Party-led Coalition government put forward a slew of hastily-crafted energy policies late last year. Earlier proposals had generally aimed to address the ‘energy trilemma’: cost, reliability, and environmental impact. But under Prime Minister Scott Morrison’s more conservative leadership, the focus is squarely on lowering the retail price of electricity - and betting on coal as the trick for the job.

Two of the Coalition’s suggestions were particularly ill-received: a threat to break up large energy generators with the ‘big stick’ of forced divestiture of assets, and a scheme to underwrite new energy generation projects (including coal-fired power plants).

The two signature policies are facing enormous pushback, and have almost no chance of being enacted. Critics have noted their extraordinary costs, poor or irrelevant projected outcomes, the “confused assessment process”, and even their potential unconstitutionality. Even traditional supporters of the Coalition view the latest moves as ironically illiberal. With coal-based power generation increasingly uneconomical, maintaining it in Australia’s energy mix requires deploying a very visible hand of market intervention.

Oliver Yates, former chief executive of the Clean Energy Finance Corporation, told Eco-Business: “Australia’s energy market is a mess. There will be significant learning [for the region] from our mistakes. Australia has implemented or proposed almost every type of emission scheme ever thought of, and then created more”.

Yates has managed millions of dollars of renewables investments on behalf of a government agency, and represents a breed of eco-conscious businesspeople fed up with the crippling environmental and economic effects of policy uncertainty. He’s taking direct action, standing as an independent candidate in the upcoming election against former energy minister and current treasurer, Josh Frydenberg.

According to Yates, governments need “a better understanding of the pros and cons of various policy options, why industry will actively lobby for one scheme over another … and the strategies that will best mobilise capital for construction”.

New power generation infrastructure requires massive initial capital outlay and a long horizon to pay back. But if the government is willing to provide a financial guarantee of return on a project, the risk is shifted onto taxpayers.

Increasingly, even coal miners aren’t keen on coal’s long-term prospects. And with social license, climate risk disclosure, activist shareholders and even environmental litigation in the mix, a new coal power plant is a highly questionable proposition.

Unplugging the clean energy incentive

Conversely, if the threat of forced divestiture hangs over a project, there’s little incentive to back it. And nationalised projects, such as the massive government-owned Snowy Hydro 2.0 (pumped hydro) or some state-level proposals, may distort the market in other ways.

Co-founder and chief executive of Pooled Energy, John Riedl, is offering demand management (in the form of automated swimming pool maintenance) to households. He told Eco-Business: “I think consumers are confused by the debate. There’s too much ideology, and not enough engineering.”

Pooled Energy isn’t shy about its environmental credentials, but Riedl emphasises that the transition to renewables can be threatened by costs, intermittency and instability. He argues that a mixture of technologies and practices is essential, including demand management and energy efficiency.

“In Australia, there are 1.4 million swimming pools. They use as much electricity as half of Victoria, or two power stations like Liddell. What we’re trying to do is use energy efficiency to get rid of one power station permanently, and pass the savings to the pool owners. And then use energy management to remove the second power station, at the time the load on the grid is at peak. So I guess you could say we’re a virtual power station or virtual battery”.

“From a government perspective, there is nothing cheaper or better than managing energy, or using less,” argues Riedl, suggesting Pooled Energy’s approach represents “about five per cent of the cost of a physical battery, about ten per cent of the running costs, and you don’t have to replace it.”

Yates believes that policy instability has forced the industry to adopt an overly cautious attitude. Ironically, he says, “direct intervention is most likely required in a policy environment of significant uncertainty”.

“To unlock investment in the sector certain assets need to be built, like transmission and storage. In Australia, we lack a real market for the services that these assets provide. As the market is lacking, there is no price … no revenue certainly is available, and therefore investment remains almost impossible”.

Riedl, too, is sympathetic to the plight of investors looking for eco-friendly projects with public benefit.

“How do you make a decision if you don’t know what the policy is? And if there’s a vacuum in the private sector, the government will have to step up and build generation itself,” says Riedl.

“It’s a very difficult problem. But one thing’s for sure: people are not going to be happy sitting in the dark”.

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